As bubble sags, market critics are busting out

Carol Lloyd

Published 4:00 am, Sunday, November 5, 2006

When the market was booming, every baby jump in prices was reported with a fascination bordering on mania. As home prices rose like hot-air balloons, they seemed to be borne aloft by the gaseous prognostications of industry professionals.

"There's nowhere to go but up! Better jump on fast or you'll be left behind!"

But now the story has changed.

Each day brings reports from Virginia (on rising new home sales cancellations) to Orlando (on plummeting home construction) to Tahoe (on the nearly 25 percent fall in sales). Bad real estate news just keeps coming like a slow-moving train wreck.

But despite the daunting numbers, the real estate industry continues to post optimistic predictions like a tribe of Pollyannas on steroids.

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Last week, David Lereah, author of 2006's "Why the Real Estate Boom Will Not Bust" and the National Association of Realtors' chief economist, had the audacity to suggest that "the worst is behind us" in terms of lagging sales numbers in September.

Times have changed, though. When the market was booming, his word might have been taken as gospel. But now that the sky is falling, bubble bloggers have become the sages of the day.

What's fascinating about the world of the bubble blogs is how quickly they've become a world unto themselves. Scores of them have sprung up like kudzu. Each major real estate region from Seattle to New York has one -- and surreal areas like the Bay Area have two or more.

There are also a number of national blogs that reflect an intriguing array of perspectives.

San Diego's Professor Piggington's Econo-Almanac for the Landed Poor makes you feel like you've being air-dropped into an economics seminar. Stacked with charts and graphs, the readers engage in serious number-crunching debates.

Other blogs have attempted to give this mathematical mayhem a human face. David Lereah Watch chronicles the botched predictions issuing from this high-profile industry insider. In a similar vein, The Mess That Greenspan Made: How 18 Years of Easy Money Have Changed the World, fixes its sights on the former Fed chair's legacy of national debt.

One of my favorite bubble blogs is Housing Panic. Written by an expat named Keith, the blog mixes its market analysis with schadenfreude-fueled high jinks: postings of YouTube real estate satires and plenty of sarcastic images of houses falling into gaping maws. While its onslaught of bitter invective against "the corrupt Real Estate Industry Complex" invokes a nefarious conspiracy of the powerful, it also lays blame on the madness of crowds.

Along with noting that the National Association of Realtors is the third-biggest institutional donor to Congress (actually, the rank has fallen to fourth, according to the Congressional Quarterly since Housing Panic's posting), there are more-philosophical queries. Next to a picture of a stark McMansion, Keith asks: "What is it about human nature that would cause anyone to want to live in a 6,000-square-foot house?"

It was Housing Panic that first reported on Iamfacingforeclosure.com, the blog of Casey Serin, a young real estate investor who self-publicized his massive real estate failures to get him on NPR, and in USA Today in this column. This week it got him an audience with his real estate idol, Robert "Rich Dad" Kiyosaki.

In contrast, Jones' solemn The Housing Bubble Blog offers an exhaustive chronicling of the media's reporting on real estate declines. Jones, who majored in real estate at the University of Texas and aspired to be a developer, decided to segue into an accounting career after watching the Texas real estate market crash in the late 1980s and early 1990s. The blog grew out of his e-mail to friends and family in 2004 after being confronted by media stories about the eternal wealth gains of real estate.

"Wait a minute, this isn't a good thing," he remembers thinking. "This could be terribly damaging. We hardly heard about anything but that this was the greatest accumulation of wealth -- but it wasn't wealth, it was debt." What started out as cautionary e-mail begat a blog that eventually turned into his full-time job.

Although Jones thinks homeownership is overrated, he judges neither the home buyers who bought too high nor the agents who sold too hard. As Jones told me in an interview, "I don't relish anyone losing money. But after this is over, it's going to be a better world. I don't want to live in a world where young couples have to pay $700,000 for their first house."

Who does he blame for the bubble? "The powers that be should have been paying attention. In the end, the fault is going to rest on Alan Greenspan's plate."

But the proto-bubble blogger has to be Patrick Killelea, a programmer living in Menlo Park, who started posting his dark prognostications on Patrick.net almost three years ago. "I started reporting on the crash before anyone else and before it was even true," he says.

What inspired his blog was a simple and familiar tale of home-buying frustrations. In 2000, he and his wife bid on a Berkeley home that was listed at $400,000. They offered $500,000 without inspections -- and got outbid. "That was when I realized that this is not sustainable," he says. "The numbers didn't add up. It made much more sense to rent."

His readers are "people like me who would like to buy but don't want to ruin their lives by getting into massive debt," he says. "Of course, there are still people who are willing to jump off the cliff -- the suicide bombers in the real estate world."

Killelea doesn't inveigh against a conspiracy of insiders so much as a system that is completely on the side of the seller. "Everyone has an economic interest in the deal -- no one is on the buyer's side." Even the lenders, who presumably are taking some risk, typically get rid of the loan as soon as they can. "They don't care, if they can pass risk off on some investor."

Although he would like to buy a house, he's not in any hurry. He guesses that the market may take a good five years to fully correct itself. His recommendation for fellow would-be buyers is to put their feet up. "Rent and watch and enjoy, 'cause now it's our turn."